Council stops investment as fears grow over Spanish economy

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Unnerved council chiefs caught out by the Icelandic banking collapse in 2008 have stopped investing millions of pounds in Santander amid fears of a growing financial crisis in Spain.

Kent County Council had listed Santander as an approved bank and was earning interest through overnight deposits, at times of as much as £3m.

But the authority has decided to temporarily stop putting in more money, due to worries over the Eurozone crisis.

Cabinet member for finance Cllr John Simmonds said the council was not withdrawing permanently, but wanted to establish how ring-fenced the UK bank was from its Spanish parent.

He said: “The worry for us is that, in the event of a crisis, client money in the UK could be pulled to Spain.”

The nervousness over the situation stems from the Icelandic banking collapse in 2008.

KCC was among a number of authorities who were caught out by the crisis after investing £50m – more than any other public body in the UK – in three Icelandic banks.

The investment represented £32m from its own reserves, £16m from Kent Pension Fund and £1m from Kent Fire and Rescue Authority.

The council had £17m frozen in Landsbanki and £15m in Glitnir as well as £18m in the UK-based Heritable Bank

Despite the council recovering most of the money, the situation has left finance chiefs shaken.

Santander said client funds are ring-fenced from its parent bank and “money raised in Britain stays in Britain”.

But KCC chiefs are remaining cautious.

On financial website This Is Money, Santander spoke out over its ownership structure, stressing that it protected UK savers.

“Santander operates under a subsidiary model.

“This means that Santander UK plc is completely autonomous from its Spanish parent company.

“This structure acts as a firewall to prevent problems within one part of the group spreading to other units in the event of financial difficulties.

“Santander also operates a “firewall” approach to borrowing and lending in the markets it operates in. This means that money raised in the UK stays in the UK.”

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